Insight archive for José Viñals | Standard Chartered

Trade will continue to grow despite US-China tensions

José Viñals — Tue, 22 Oct 2019 10:51:39 +0000

Global trade has been expanding more slowly since the 2008 global financial crisis, and US-China trade tensions have created fresh uncertainties. However, those who fear that disputes between the world’s two biggest exporters will sound the death knell for trade, are missing the bigger picture. Trade is a key driver of economic growth, so we must get it right.

The risk of disruption in global trade is real – and would be very damaging for the world economy. But if we look at what is going on away from the US-China axis, there is good news.

"Trade is a key driver of economic growth so we must get it right"

A new study by Standard Chartered, Trade20, shows that a wide range of economies in Asia-Pacific, Africa and the Middle East have significantly improved their potential for trade growth by opening up their markets, diversifying their exports, improving their economic dynamism, and strengthening their physical and digital infrastructure.

Buoyed by regional trade deals and liberalising policies, several members of the Association of Southeast Asian Nations — Vietnam, Indonesia and Thailand — have been making particularly strong progress in opening for trade, as has India. With supply chains via China under threat, international companies are already diversifying into these economies, making them more interesting as investment opportunities, export markets and supply chain partners.

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Of course, larger economies have the greatest trade potential in absolute terms, but smaller countries may rival them in terms of speed of progress and potential for trade growth relative to their size. Côte d’Ivoire, Kenya and Oman are on an upward trajectory, progressing at pace from a relatively low starting point. Smaller countries such as these could also benefit as multinationals diversify their supply chains.

Even if the US and China do manage to agree on a new trade deal – which would bring huge benefits – the push for diversified supply chains will continue. Having tasted uncertainty, many companies will want to protect themselves against future interruptions to trade or new tariffs by producing or sourcing the same product in more than one country.

While this may be disruptive initially, and be less efficient, it will make global trade more resilient in the long term. Further trade growth is likely, no matter what happens to the US and China. Most countries recognise that trade is a critical lever to accelerate economic development, increase competition and improve productivity. Patterns of trade will continue to become more complex and diversified, as new markets move into prominence – particularly India and the ASEAN economies.

Another positive sign for global trade is that a wide range of new free-trade agreements are being signed or are under negotiation. The EU is negotiating numerous trade deals and has recently reached agreements with Japan, Vietnam and the South American trade bloc Mercosur. There are also several regional pacts in Asia and Africa. A post-Brexit Britain will also be looking to negotiate new trade deals and will want to do them quickly.

"The real question we should be asking now is: how do we ensure free trade is recognised as a true force for good?"

Trade agreements boost exports and gross domestic product over time, studies have shown. Larger-scale regional trade deals increase competitive pressures in the participating countries, which drives local businesses to become more efficient and productive. It also offers the chance for countries to specialise in the most productive industries.

The real question we should be asking now is: how do we ensure free trade is recognised as a true force for good? We must never forget that voter unease about globalisation led to rising protectionism and much of the hostility to trade in the first place. The 2008 crisis highlighted the unequal distribution of the benefits from globalisation. The resulting economic downturn hit vulnerable populations hard, causing them to question the merits of immigration, free trade and investment.

Undoubtedly, free trade has tremendous power to drive prosperity across the globe. But rising populism and current trade disputes remind us that we must work harder to ensure the benefits are felt as widely as possible within countries. Political leaders have a responsibility to implement inclusive social and economic policies, and private companies must act responsibly and invest in the communities they serve.

If no US-China trade agreement can be reached, this will be very unfortunate and disruptive to the global economy, but the trend toward increasing world trade is far from over. It remains our best hope for growth.

This article originally appeared in the Financial Times on 22 October 2019.

Here for good means saying no to coal

José Viñals — Mon, 24 Sep 2018 23:39:24 +0000

For too many people, life comes to a stop after dark. For too many people, climate change, exacerbated by burning fossil fuels, threatens their way of life. These two contrasting positions neatly demonstrate the challenge in trying to balance society’s needs.

Around the world more than a billion people still do not have access to reliable power, severely impacting their economic and social development. The link between power provision and poverty alleviation is clear: in today’s China, almost 100 per cent of the country’s population is connected to the grid following significant investment. Meanwhile, the World Bank estimates 800 million people have been lifted out of poverty over the last forty years.

At the same time, we are witnessing a period of terrible environmental degradation across the world, in part, because so much energy comes from fossil fuels, especially coal, compounding a problem triggered by the industrial revolution over 150 years ago. The results we know only too well: pollution that poisons both the environment and the people that live in it, higher temperatures that contribute to extreme weather conditions and destroy habitats, and rising sea levels.

It has proved difficult to tackle energy poverty at the same time as meeting climate objectives. Often, there has been a difficult trade-off to reconcile. To pull millions out of poverty, we need reliable and affordable electricity and, up until now, that has meant burning coal – almost nine billion tonnes of it every year. This cannot continue: as former UN Secretary-General Ban Ki-Moon said about climate action, there is no plan B because there is no planet B.

"It's the right thing to do"

WATCH: More from our Chairman on saying no to coal

Nurturing sustainable growth and development

As a leading international bank, and committed to the Paris Agreement, Standard Chartered bears a tremendous responsibility to support and nurture sustainable growth and development. For well over a century, we have provided banking services in some of the world’s most dynamic regions. Today, two-thirds of the world’s population live in our fast-growing markets, many of them developing countries, many of them in need of reliable energy to power their growth.

We have done much to help such countries finance their way out of fuel poverty. Going forward, we will continue to do so, but in a way that better protects the environment. Having previously committed not to finance any new stand-alone thermal coal mines, we are now going further by stopping our financing of new coal-fired power plants anywhere in the world, save where there is an existing commitment.

"We have arrived at our decision following an extensive consultation process with all our stakeholders, including clients, employees, shareholders, NGOs and governments"

Our new approach to coal-fired power plants adds to the extensive list of activities we have already said we will not support, including arctic and tar-sands exploration and production, as well as the conversion or degradation of high-value forests and peatlands.

We have arrived at our decision on coal following an extensive consultation process with all of our stakeholders, including clients, employees, shareholders, NGOs and governments. Through this process, we have listened to and reflected on all sides of the debate.

Our decision reflects the dynamism and growing affordability of alternative energy sources. Just as mobile phones have allowed many of our markets to leapfrog old technologies and business models, so too can clean energy allow businesses and communities to avoid reliance on coal.

Wind turbines are being developed that are ever larger and more efficient. In the world’s second largest energy market, the US, the cost of wind energy has declined by two-thirds since 2009 and it is estimated could fall another 50 per cent by 2030. Meanwhile the cost of solar electricity has slumped to US$0.10 per kilowatt hour. There is no reason why the benefits of cheap, abundant, clean energy should be confined to richer industrialised nations and not shared with emerging markets; indeed, we are already working with communities in our markets to develop off-grid sources of renewable energy.

Overall, we have demonstrated our support of the Paris Agreement through our commitment to fund and facilitate US$4 billion in clean energy projects by 2020. We are already halfway to meeting that commitment.

For future generations

More widely, we, at Standard Chartered, believe that the financial sector has an important role to play helping our clients to find more sustainable sources of power and bring about the low-carbon future. That is why we are also committing to work with our clients in the utility sector to help them to reduce their dependence on coal, switching to low carbon and clean energy.

With their rising incomes and increasing consumption, we also believe it is the fast-growing markets in which we operate that can have the biggest impact in the fight against climate change.

If we are to live up to our brand promise, Here for good, it is vital that we act today to make this happen and ensure we can have a positive impact for the generations to come.

Before you go, you might also be interested in the story on how we're supporting a low-carbon future...

The chance for banks to show their worth

José Viñals — Wed, 06 Sep 2017 08:00:27 +0000

Ever since the global financial crisis, international banks have been operating in a challenging environment. We have experienced a decade of lower economic growth, subdued world trade, low interest rates, stricter regulation and increasing competition. Recent political controversies about globalisation and a rise in protectionist rhetoric – especially in the West – have further complicated the situation.

Yet we should not let the existence of such challenges obscure when things are changing in a more positive direction. Economic forecasts have been upgraded for the first time since the financial crisis, with global growth projected to improve this year and next and world trade accelerating to advance faster than global output.

Although the US has withdrawn from the proposed Trans-Pacific Partnership (TPP), protectionist rhetoric has not, so far, translated into substantial actions that would undermine the existing global trade system.

Change of tone

The Federal Reserve has already started to raise interest rates in the US and other major central banks are considering starting to normalise monetary policies.

There has also been a willingness of international regulators to reconsider specific regulations that may have led to adverse unintended consequences. Banks are considerably stronger, with more capital, and are investing in new technologies to become more efficient and provide better services.

But let us not be complacent. In many advanced economies real wages are stagnant, productivity is weak and trend rates of growth are lower than before.

"There is more to do to ensure ethics and the right values are deeply embedded in banking"

There are also geopolitical uncertainties whose exacerbation or materialisation would lead to a decline in confidence and adverse economic and financial consequences.

Finally, there are risks stemming from the normalisation of monetary policy in an environment of very low financial volatility and elevated market valuations. A faster than expected withdrawal of monetary accommodation in the US or a premature tightening in Europe or Japan could undermine the global recovery, provoke sharp market corrections and adversely affect emerging markets which are more leveraged or exhibit weaker fundamentals.

Achieving sustainable growth

The question we now face is twofold. First, given these uncertainties, what should the authorities do to put growth on a stronger, more sustainable footing? And second, what can international banks do to contribute to this goal?

Policymakers in both advanced economies and emerging markets should continue to strive to implement a sensible monetary and fiscal policy mix, including measures to safeguard financial stability and much needed structural reforms. It is also vital to preserve the existing multilateral cooperation framework that has served the world so well.

"There are established links between the global economy, international banks and trade which are fundamental to providing prosperity"

We, international banks, must continue to enhance our own performance and tackle our own challenges to better support global growth. We must continue to advance our internal transformation to establish business models that deliver sustained economic value. Our financial strength, culture and controls have all been improved but there is more to do to ensure ethics and the right values are deeply embedded in banking. This is critical to regain the loss of trust in banks by society as a result of the crisis.

We should not forget that there are established links between the global economy, international banks and trade which are fundamental to providing the growth and prosperity on which the world depends.

The economic recovery from the financial crisis is a classic example. The recovery has, to a large extent, been driven by activity in emerging markets, particularly in Asia. Latterly, growth in Europe has picked up and the US economy remains strong. But the role of Asia in supporting world trade is critical and a genuinely historic development.

Belt and Road – boosting world trade

China, a leading world economy, is overtaking the US to be the driver of world free trade. It is the world’s mega-trader. China’s share of world trade rose to nearly 14 per cent in 2016, up from close to 9 per cent 10 years ago.

The US may have pulled out of TPP, but China has pressed on with attempting to finalise its own regional agreement, the Regional Comprehensive Economic Partnership (RCEP). This covers countries amounting to about a third of global GDP and will substantially benefit manufacturing by removing tariffs on goods. While these benefits might not be as large as those TPP offered, they are very welcome.

The biggest Chinese initiative is, however, the Belt and Road (B&R), a potentially major force to boost world trade and investment and to foster globalisation by deepening links between East and West. China has signed co-operation agreements with over 30 countries along the B&R route and six key trade corridors, with economies along the route accounting for about 60 per cent of global population and 30 per cent of global GDP.

"A progressive series of market-friendly reforms over the last decade have improved economic governance"

Fortunately, China is not alone in embracing economic reform. A progressive series of market-friendly reforms over the last decade have improved economic governance and made economies and financial systems more resilient than they were in the crisis of the late nineties.

That said, many emerging economies do need to address outstanding vulnerabilities, notably those derived from the significant increase in corporate and household leverage in recent years. China stands out, with corporate debt of more than 160 per cent of GDP. The authorities recognise this, and are taking steps to address it.

In advanced economies, while financial systems have become stronger and budget deficits reduced, there has been insufficient focus on enhancing growth and productivity through structural reforms and investment, especially in infrastructure, R&D and education.

Do banks have a social purpose?

The role for international banks in this environment is vital. We are able to support world trade and investment, by lending our expertise to clients and governments and providing the financing to corporates needed for a growing economy.

International banks support exports by facilitating access to finance and providing products that exporters need, such as letters of credit to overcome credit risk and derivatives to hedge currency risk. This link between international banks and cross-border trade, which is itself an important driver of investment and economic growth, is absolutely fundamental to understand our role.

"We must continuously work hard to put our own houses in order, including deeply embedding a culture of ethical banking"

Bankers are often asked; what do they do that is socially useful? The answer is simple. We support the real economy, by financing trade and investment to foster economic growth and development. But we do not take that role for granted. In order to accomplish our goals for our own businesses, our clients and the societies where we operate, we must continuously work hard to put our own houses fully in order, including deeply embedding a culture of ethical banking.

A version of this article originally appeared in The Banker, a Financial Times magazine, on 1 September 2017.